Question Tag: Acquisitions

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  • 15 Marks

FM – Nov 2016 – L3 – SC – Q7 – Mergers and Acquisitions

Advise on the benefits, drawbacks, alternatives, and target selection criteria for expansion through mergers or acquisitions.

One of the means by which companies expand is through mergers and acquisitions. However, there are other means of expansion aside from these methods.

Inkline Plc. is one of your client companies intending to expand its business by means of merger or acquisition. Your firm of management consultants has been asked to advise the management of the company on what steps to take while considering the merger and acquisition methods, and whether it should go ahead with the expansion programme or otherwise.

Required:

a. (i) FOUR benefits derivable from its proposed means of expansion. (4 Marks)
(ii) THREE probable demerits of employing its proposed method of expansion. (3 Marks)

b. TWO alternatives to merger and acquisition in your report. (2 Marks)

c. Where the company decides to go ahead with either of these methods, indicate THREE criteria the company may consider in choosing its target company. (6 Marks)

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  • 20 Marks

ATAX – May 2021 – L3 – Q3 – Taxation of Mergers and Acquisitions

Explaining acquisitions versus mergers, outlining tax implications for companies, and evaluating AfCFTA's impact on transactions.

The price of crude oil had fallen from over US$100 per barrel in the past few years to under US$40 per barrel recently in the international market. This has resulted in squeezed margins despite efforts to cut costs.

Krude Explora Nigeria Limited, an indigenous oil servicing company operating in the oil and gas sector for 23 years, faces a going concern risk due to falling profitability and liquidity challenges. It is probable that the company will default on its loan facility of US$122.5 million from B2B Energy Bank Plc. If this happens, the company will likely be taken over by Asset Management Corporation of Nigeria (AMCON).

Coincidentally, Wakanda Oil Exploration Limited, a multinational oil servicing company operating across Africa and the Middle East, has just sent an offer to acquire Krude Explora Nigeria Limited. The proposed acquisition will solve the liquidity problems in the short term, while efficiency and scale from the acquisition will hopefully return the company to profitability.

As the lead tax advisor for the proposed transaction, you are required to:

a. Explain the term “acquisition” as compared to a “merger” and give one example each of a recent merger and acquisition in the Nigerian petroleum industry. (4 Marks)

b. Outline and explain briefly the areas that may have tax implications for:
i. Krude Explora Nigeria Limited (4 Marks)
ii. Wakanda Oil Exploration Limited (4 Marks)

c. Discuss the likely impact of the African Continental Free Trade Area agreement and the local economy on a proposed acquisition or merger. (7 Marks)

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  • 15 Marks

ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)

Identify allowable expenses under the PIA and explain implications of mergers in upstream petroleum operations.

In the last three years, some major oil producing companies have decided to divest their investments from the Nigerian oil and gas sector. One of the reasons for this might be the new global energy order, which seems to favour the evolution of a “green environment” as against the present use of hydrocarbons with its inherent environmental degradation and pollution.

Similarly, in response to the yearnings of various stakeholders in the oil and gas sector, the Federal Government enacted the Petroleum Industry Act (PIA) 2021. Generally, the Act provides the legal, governance, regulatory, and fiscal framework for the Nigerian petroleum industry, the development of host communities, and for related matters.

Notable commentators and professionals in the sector suggest that the divestment of major oil and gas operators in Nigeria could be beneficial to local investors if funds are sourced and deployed to businesses in the sector. Mergers and acquisitions of indigenously owned oil-producing companies have been noted as one valuable option in this regard.

Required:

a. In respect of the Petroleum Industry Act 2021, identify the expenses allowable in the computation of adjusted profit of a company in upstream petroleum operations. (6 Marks)
b. Identify and explain SIX implications of mergers and acquisitions in respect of a situation where a new company takes over an existing company. (9 Marks)

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  • 15 Marks

FM – Nov 2016 – L3 – Q7 – Mergers and Acquisitions

Advise Inkline Plc on expansion through mergers or acquisitions, potential benefits, demerits, alternatives, and target criteria.

One of the means by which companies expand is through mergers and acquisitions. However, there are other means of expansion aside from these methods.

Inkline Plc, one of your client companies, is intending to expand its business by means of a merger or acquisition. Your firm of management consultants has been asked to advise the management of the company on what steps to take while considering the merger and acquisition methods and whether it should go ahead with the expansion program or otherwise.

Required:

(a) Advise your client on:
(i) Four benefits derivable from its proposed means of expansion. (4 Marks)
(ii) Three probable demerits of employing its proposed method of expansion. (3 Marks)

(b) State two alternatives to merger and acquisition in your report. (2 Marks)

(c) Where the company decides to go ahead with either of these methods, indicate three criteria the company may consider in choosing its target company. (6 Marks)

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Has Case Study
  • 10 Marks

SCS – Aug 2022 – L3 – Q2 – Strategy Implementation

A report detailing the advantages of acquisition and mergers as a growth strategy versus internal development for Bazar.

In discussing the report presented by AB Consult & Associate, the Director of Finance and Operations made a strong point for acquisition and mergers as a growth strategy instead of internal development. She gave her full support to the decision to acquire the 20 stores.

Required:
Write a report detailing the advantages of an acquisition and mergers method of growth instead of an internal development. Conclude your report by explaining why the financial position and financial performance of Bazar will support or not support the decision to acquire the 20 stores.

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  • 20 Marks

SCS – March 2023 – L3 – Q3 – Competitive advantage

Discusses the pros and cons of mergers and acquisitions and uses SWOT analysis to evaluate the business strategy

LCH is facing very stiff competition from both public and private health facilities. You have suggested that LCH consider either acquisition or mergers or both as a strategic move to survive in the industry.

a) Discuss FIVE (5) advantages and FIVE (5) disadvantages of a decision to consider acquisition and merger as a survival strategy.
(10 marks)

b) Using SWOT analysis, identify and discuss key factors that might affect LCH’s business strategy.
(10 marks)

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  • 8 Marks

AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

Despite substantial evidence, drawn from different countries and different time periods, that suggests the wealth of shareholders in a bidding company is unlikely to be increased as a result of taking over another company, takeovers remain an important part of the business landscape.

Required:
i) Explain briefly when a takeover will make economic and financial sense.
(3 marks)

ii) Discuss briefly FIVE (5) reasons why a takeover may fail to deliver an expected increase in wealth for the bidding company’s shareholders.
(5 marks)

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  • 5 Marks

AFM – May 2016 – L3 – Q3b – Acquisitions and mergers versus other growth strategies, Regulatory framework and processes

Outline the actions a target company might take to prevent a hostile takeover bid.

b) As a Finance Manager in your company, you have been asked to produce an explanatory memo to Senior Management on the subject of Mergers and Acquisitions. Your memo should clearly outline what actions a target company might take to prevent a hostile takeover bid.

(5 marks)

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  • 10 Marks

AFM – May 2016 – L3 – Q3a – Valuation of acquisitions and mergers, Acquisitions and mergers versus other growth strategies

Calculate pre-acquisition market values of two companies and determine the maximum price for an acquisition.

a) Plainview Farms Limited is considering acquiring Cottage Industries Limited. The extracts of the financial statements of the two companies are as follows:

Statement of Financial Position

Plainview Farms Ltd (GH¢’m) Cottage Industries Ltd (GH¢’m)
Net Assets 6,300 1,892
Equity Capital 2,000 1,000
Income Surplus 4,300 892

Income Statement

Plainview Farms Ltd (GH¢’m) Cottage Industries Ltd (GH¢’m)
Profit after tax 800 300
Dividend (600) (100)
Retained earnings 200 200

The two companies retain the same proportion of profits each year, and this is expected to continue in the future. Plainview Farms Limited’s return on investment is 16%, while Cottage Industries Limited’s is 21%. One year after the post-acquisition period, Plainview Farms will retain 60% of its earnings and expects to earn a return of 20% on new investment.

The dividends of both companies have been paid. The required rate of return for ordinary shareholders of Plainview Farms Limited is 12%, and for Cottage Industries Limited it is 18%. After the acquisition, the required rate of return will become 16%.

Required:
i) Calculate the pre-acquisition market values of both companies. (5 marks)
ii) Calculate the maximum price Plainview Farms Limited will pay for Cottage Industries Limited. (5 marks)

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  • 4 Marks

AFM – May 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discussing strategic issues that arise from pursuing growth through mergers, acquisitions, and organic growth.

Expansion by organic growth or by acquisition should only be undertaken if it leads to an increase in the wealth of the shareholders.

Required:
i) Discuss TWO strategic issues that arise from pursuing growth through mergers and acquisitions. (4 marks)
ii) Discuss TWO strategic issues that arise from pursuing growth through organic growth. (4 marks)

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  • 15 Marks

FM – Nov 2016 – L3 – SC – Q7 – Mergers and Acquisitions

Advise on the benefits, drawbacks, alternatives, and target selection criteria for expansion through mergers or acquisitions.

One of the means by which companies expand is through mergers and acquisitions. However, there are other means of expansion aside from these methods.

Inkline Plc. is one of your client companies intending to expand its business by means of merger or acquisition. Your firm of management consultants has been asked to advise the management of the company on what steps to take while considering the merger and acquisition methods, and whether it should go ahead with the expansion programme or otherwise.

Required:

a. (i) FOUR benefits derivable from its proposed means of expansion. (4 Marks)
(ii) THREE probable demerits of employing its proposed method of expansion. (3 Marks)

b. TWO alternatives to merger and acquisition in your report. (2 Marks)

c. Where the company decides to go ahead with either of these methods, indicate THREE criteria the company may consider in choosing its target company. (6 Marks)

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  • 20 Marks

ATAX – May 2021 – L3 – Q3 – Taxation of Mergers and Acquisitions

Explaining acquisitions versus mergers, outlining tax implications for companies, and evaluating AfCFTA's impact on transactions.

The price of crude oil had fallen from over US$100 per barrel in the past few years to under US$40 per barrel recently in the international market. This has resulted in squeezed margins despite efforts to cut costs.

Krude Explora Nigeria Limited, an indigenous oil servicing company operating in the oil and gas sector for 23 years, faces a going concern risk due to falling profitability and liquidity challenges. It is probable that the company will default on its loan facility of US$122.5 million from B2B Energy Bank Plc. If this happens, the company will likely be taken over by Asset Management Corporation of Nigeria (AMCON).

Coincidentally, Wakanda Oil Exploration Limited, a multinational oil servicing company operating across Africa and the Middle East, has just sent an offer to acquire Krude Explora Nigeria Limited. The proposed acquisition will solve the liquidity problems in the short term, while efficiency and scale from the acquisition will hopefully return the company to profitability.

As the lead tax advisor for the proposed transaction, you are required to:

a. Explain the term “acquisition” as compared to a “merger” and give one example each of a recent merger and acquisition in the Nigerian petroleum industry. (4 Marks)

b. Outline and explain briefly the areas that may have tax implications for:
i. Krude Explora Nigeria Limited (4 Marks)
ii. Wakanda Oil Exploration Limited (4 Marks)

c. Discuss the likely impact of the African Continental Free Trade Area agreement and the local economy on a proposed acquisition or merger. (7 Marks)

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  • 15 Marks

ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)

Identify allowable expenses under the PIA and explain implications of mergers in upstream petroleum operations.

In the last three years, some major oil producing companies have decided to divest their investments from the Nigerian oil and gas sector. One of the reasons for this might be the new global energy order, which seems to favour the evolution of a “green environment” as against the present use of hydrocarbons with its inherent environmental degradation and pollution.

Similarly, in response to the yearnings of various stakeholders in the oil and gas sector, the Federal Government enacted the Petroleum Industry Act (PIA) 2021. Generally, the Act provides the legal, governance, regulatory, and fiscal framework for the Nigerian petroleum industry, the development of host communities, and for related matters.

Notable commentators and professionals in the sector suggest that the divestment of major oil and gas operators in Nigeria could be beneficial to local investors if funds are sourced and deployed to businesses in the sector. Mergers and acquisitions of indigenously owned oil-producing companies have been noted as one valuable option in this regard.

Required:

a. In respect of the Petroleum Industry Act 2021, identify the expenses allowable in the computation of adjusted profit of a company in upstream petroleum operations. (6 Marks)
b. Identify and explain SIX implications of mergers and acquisitions in respect of a situation where a new company takes over an existing company. (9 Marks)

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  • 15 Marks

FM – Nov 2016 – L3 – Q7 – Mergers and Acquisitions

Advise Inkline Plc on expansion through mergers or acquisitions, potential benefits, demerits, alternatives, and target criteria.

One of the means by which companies expand is through mergers and acquisitions. However, there are other means of expansion aside from these methods.

Inkline Plc, one of your client companies, is intending to expand its business by means of a merger or acquisition. Your firm of management consultants has been asked to advise the management of the company on what steps to take while considering the merger and acquisition methods and whether it should go ahead with the expansion program or otherwise.

Required:

(a) Advise your client on:
(i) Four benefits derivable from its proposed means of expansion. (4 Marks)
(ii) Three probable demerits of employing its proposed method of expansion. (3 Marks)

(b) State two alternatives to merger and acquisition in your report. (2 Marks)

(c) Where the company decides to go ahead with either of these methods, indicate three criteria the company may consider in choosing its target company. (6 Marks)

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  • 10 Marks

SCS – Aug 2022 – L3 – Q2 – Strategy Implementation

A report detailing the advantages of acquisition and mergers as a growth strategy versus internal development for Bazar.

In discussing the report presented by AB Consult & Associate, the Director of Finance and Operations made a strong point for acquisition and mergers as a growth strategy instead of internal development. She gave her full support to the decision to acquire the 20 stores.

Required:
Write a report detailing the advantages of an acquisition and mergers method of growth instead of an internal development. Conclude your report by explaining why the financial position and financial performance of Bazar will support or not support the decision to acquire the 20 stores.

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  • 20 Marks

SCS – March 2023 – L3 – Q3 – Competitive advantage

Discusses the pros and cons of mergers and acquisitions and uses SWOT analysis to evaluate the business strategy

LCH is facing very stiff competition from both public and private health facilities. You have suggested that LCH consider either acquisition or mergers or both as a strategic move to survive in the industry.

a) Discuss FIVE (5) advantages and FIVE (5) disadvantages of a decision to consider acquisition and merger as a survival strategy.
(10 marks)

b) Using SWOT analysis, identify and discuss key factors that might affect LCH’s business strategy.
(10 marks)

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  • 8 Marks

AFM – Nov 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discuss when takeovers make financial and economic sense and reasons why takeovers may fail to increase shareholder wealth.

Despite substantial evidence, drawn from different countries and different time periods, that suggests the wealth of shareholders in a bidding company is unlikely to be increased as a result of taking over another company, takeovers remain an important part of the business landscape.

Required:
i) Explain briefly when a takeover will make economic and financial sense.
(3 marks)

ii) Discuss briefly FIVE (5) reasons why a takeover may fail to deliver an expected increase in wealth for the bidding company’s shareholders.
(5 marks)

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  • 5 Marks

AFM – May 2016 – L3 – Q3b – Acquisitions and mergers versus other growth strategies, Regulatory framework and processes

Outline the actions a target company might take to prevent a hostile takeover bid.

b) As a Finance Manager in your company, you have been asked to produce an explanatory memo to Senior Management on the subject of Mergers and Acquisitions. Your memo should clearly outline what actions a target company might take to prevent a hostile takeover bid.

(5 marks)

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  • 10 Marks

AFM – May 2016 – L3 – Q3a – Valuation of acquisitions and mergers, Acquisitions and mergers versus other growth strategies

Calculate pre-acquisition market values of two companies and determine the maximum price for an acquisition.

a) Plainview Farms Limited is considering acquiring Cottage Industries Limited. The extracts of the financial statements of the two companies are as follows:

Statement of Financial Position

Plainview Farms Ltd (GH¢’m) Cottage Industries Ltd (GH¢’m)
Net Assets 6,300 1,892
Equity Capital 2,000 1,000
Income Surplus 4,300 892

Income Statement

Plainview Farms Ltd (GH¢’m) Cottage Industries Ltd (GH¢’m)
Profit after tax 800 300
Dividend (600) (100)
Retained earnings 200 200

The two companies retain the same proportion of profits each year, and this is expected to continue in the future. Plainview Farms Limited’s return on investment is 16%, while Cottage Industries Limited’s is 21%. One year after the post-acquisition period, Plainview Farms will retain 60% of its earnings and expects to earn a return of 20% on new investment.

The dividends of both companies have been paid. The required rate of return for ordinary shareholders of Plainview Farms Limited is 12%, and for Cottage Industries Limited it is 18%. After the acquisition, the required rate of return will become 16%.

Required:
i) Calculate the pre-acquisition market values of both companies. (5 marks)
ii) Calculate the maximum price Plainview Farms Limited will pay for Cottage Industries Limited. (5 marks)

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  • 4 Marks

AFM – May 2018 – L3 – Q3a – Acquisitions and mergers versus other growth strategies

Discussing strategic issues that arise from pursuing growth through mergers, acquisitions, and organic growth.

Expansion by organic growth or by acquisition should only be undertaken if it leads to an increase in the wealth of the shareholders.

Required:
i) Discuss TWO strategic issues that arise from pursuing growth through mergers and acquisitions. (4 marks)
ii) Discuss TWO strategic issues that arise from pursuing growth through organic growth. (4 marks)

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